Chancellor announces U-turn on NI tax rises

The Chancellor has scrapped plans to increase National Insurance for millions of self-employed people, admitting it breached a central Tory manifesto promise.

Less than a week after delivering his first Budget, Philip Hammond climbed down on one of his most significant measures.

His decision to increase National Insurance by 2% sparked an angry backlash, including from his own backbenches.

In the immediate aftermath of the Budget, Mr Hammond was accused of breaking the "tax-lock" pledge made ahead of the 2015 election not to increase income tax, VAT or National Insurance.

In a letter to Conservative MPs on Wednesday, Mr Hammond admitted it was "clear that compliance with the 'legislative' test of the Manifesto commitment is not adequate".

He added: "In light of what has emerged as a clear view among colleagues and a significant section of the public, I have decided not to proceed with Class 4 NIC (NasdaqGS: EGOV - news) measures set out in the Budget."

The reverse marks the third year in a row the Tories have had to reverse key Budget measures - George Osborne was forced to drop Tax Credit cuts in 2015 and disability cuts last year.

The increase was supposed to raise the £2bn Mr Hammond pledged for social care, leaving the Chancellor with a blackhole to fill.

Theresa May, who had robustly defended the increase, confirmed the reversal at the beginning of Prime Minister's Questions.

She (Munich: SOQ.MU - news) was accused of presiding over "chaos" and a "budget that has unravelled in seven days" by Labour leader Jeremy Corbyn. The SNP's Angus Robertson called it a "screeching, embarrassing U-turn".

Labour's Yvette Cooper said: "The Prime Minister has just done a £2bn Budget U-turn in the space of about a week.

"Last year the Government did a £4bn U-turn in the space of five days.

"Is that why they want to abolish spring budgets? Because they just keep ripping them up?"

Giving a statement to the Commons this afternoon, Mr Hammond insisted that he was right to address "the imbalance" between taxes paid by the employed and the self-employed, adding that reducing unfairness on tax treatment "remains the right thing to do".

Defending his change of plan, the Chancellor said he and the Prime Minister had "listened to our colleagues, listened to the voices of public opinion".

Blasting the U-turn, shadow Chancellor John McDonnell said: "This is chaos. It is shocking and humiliating."

He called the initial plan as a "clear cut and cynical" move that had put self-employed people "through the mangle" and he attacked the U-turn as a blunder that demanded an apology, which has not been forthcoming.

Liberal Democrat leader Tim Farron said: "The Conservatives have bodged every Budget since the election and have lost the right to call themselves the party of business."

Respected economic think tank, the Institute for Fiscal Studies, has supported the increases, which would have seen millions paying £240 a year more.

Director Paul Johnson described the policy as "a modest but welcome change designed to shore up the tax base and create a slightly less unequal playing field between the self-employed and employees".

A number of Conservative MPs had been supporting the move and appeared dismayed by the back tracking.

Ed Vaizey tweeted: "Blimey. I've been vigorously defending it..."

Mr Hammond also announced a consultation looking at the different parental benefits available to employed and self-employed would be widened to look at other areas.

And he said that he would set out how he will fund the national insurance changes in full at the Autumn Budget.